Diller Shopping HSN

Barry Diller is looking to unload Home Shopping Network. He no longer considers the shopping channel, the core of his company since its inception, a pivotal asset of USA Interactive.

He doesn't want to sell it outright but wants to find the right partner to take it out of his Internet-based portfolio and leave him with a piece of the action. "We are open to joint-venturing HSN, if there's something interesting for us to do."

The pronouncement at Salmon Smith Barney's annual media conference in La Quinta, Calif., last week is a significant change of direction for Diller. He has long talked about the network's importance in his mix of "transaction" businesses, which include travel agencies Expedia and Hotels.com and ticket-sales operation Ticketmaster. But the truth is, he has teased enough cash flow out of the network to get his Internet operation going and, since HSN can't lead him to the broadcast network he once dreamed of, he's ready to cut it loose.

Diller said he wants to retain full ownership of HSN's Web retail arm, HSN.com, which he sees as a challenger to Amazon and eBay in Internet retailing. As for the cable network, though, he'd be happy to hand it over to a partner. "We don't have to control it," he said. "We do have to stay in it."

The potential partners are "fairly obvious," Diller said, without naming names.

Niraj Gupta, the Salomon media analyst who hosted the conference, said likely partners are retailers, companies already in the bricks-and-mortar game that watch HSN and QVC move billions of dollars worth of merchandise through their systems with far less capital investment than pouring concrete at a new mall site.

"That's intuitive," Gupta said. "But they're not necessarily good at electronic retailing."

HSN had a terrible 2002. Morgan Stanley media analyst Richard Bilotti estimates that its U.S. revenues grew a meager 3.2% for the year, to $1.7 billion. Sure, the recession made it a lousy year for all sorts of retailers. But HSN's powerhouse rival QVC managed to rack up 11% sales growth. Diller's network still badly lags QVC—which Diller once also ran—in sales per subscriber, with a mere $20.45 vs. QVC's $45.

HSN's international ventures tanked along with other international media ventures. Latin and Italian operations were simply shut down; a German venture is rocky.

HSN could be worth $4.2 billion, about one-third of Bilotti's $13 billion valuation of QVC.

Diller acted coy about Vivendi Universal, which reacquired USAI's entertainment networks last May. Vivendi's predecessor, Seagram, had merged USA network and Sci Fi Channel into what was then Home Shopping Network Inc. (Yes, Diller trades assets like Yu-gi-Goh cards.)

Diller wants them back and also wants control of Vivendi's Universal Pictures. He has the backing of Liberty Media Chairman John Malone to put up money and assets to win the deal. USAI now owns a 3% stake in Vivendi.

But Vivendi hasn't put the entertainment assets up for sale, and Diller's former—and hated—boss at 20th Century Fox, Marvin Davis, has offered $20 billion for the operation, although many industry executives doubt that oilman Davis has that kind of financial capacity.

Diller claimed—convincing no one—that he would be happy no matter what happens. "They'll operate it, they'll get stronger financially, we'll get paid what we get paid," he said, adding that he wouldn't expect much growth.

He also said it is "okay" if "fat Marvin Davis or some other more reputable player comes along and buys it outright." But, referring to waiters at the lunch where he was speaking, Diller said Davis "has as much chance as anybody who's serving you today."

Liberty Media President Dobb Bennett—Diller's partner in USAI—remains interested in buying Vivendi's entertainment units, merging it with his pay network Starz! and putting up enough cash so that Liberty winds up with a controlling position. "We think there is an opportunity to create a large domestic content business," he said. "It's early in the process, hard to know exactly what else is there."